Saturday, September 03, 2005

Sleeper Number 2

9/3/05 Sleeper Number 2

“This is a national disgrace. FEMA has been here three days, yet there is no command and control. We can send massive amounts of aid to tsunami victims, but we can’t bail out the city of New Orleans,” stated Terry Ebbert, Director of Homeland Security for the City of New Orleans.

Forrester Inc has found that at least 12,000 legal jobs have been outsourced from the U.S. to offshore locations till 2004. Further, the firm has projected that of the 35,000 U.S. lawyer jobs expected to be shipped out, 60 to 70 percent could be headed India’s way. By 2015, the total number of outsourced jobs from the U.S. could touch 79,000.

Steve Sabludowsky: “Black leaders who place their mugs on national television and who are yelping race as the culprit are doing an injustice as they have always done. They would be much better people and their communities much better served if they were to use their bully pulpits to preach dignity, respect, the need for an education, the rule of law and entrepreneurship. Whites who look in horror at the incredible events of looting and see justification in their hatreds are also being abusive to the truth. Those who did engage in such lawlessness were an extreme minority of African Americans who resided in New Orleans.”

Contract manufacturing of electronics will nearly triple in India over five years, market researcher iSuppli Corp. predicts. Combined revenue for electronics manufacturing services and original design manufacturing will rise from $774 million in 2004 to $2 billion by 2009, it said.

Louisiana Governor Blanco’s letter to Bush: “I request the expeditious return of the Headquarters of the 256th Brigade Combat Team as they have completed their mission in the Iraqi theatre of operations and they are urgently needed here at home. I request that you remission this unit to Louisiana where they will become part of the recovery efforts in their home state. As the remainder of the Brigade returns, I request that they be missioned by the Department of Defense to assist civil authorities in Hurricane Katrina recovery operations in Louisiana.”

In 1933, the personal savings rate was a negative 1.5%.

M3, bank credit, securities credit, C& I loans, real estate loans, consumer loans, and commercial paper are surging. In sum, loans are at the “froth” level and the savings rate is at ground zero.

The Goldman Sachs Commodities Index has risen 49% this year.

A few months ago I wrote about a sleeper--- PetroKazakhstan. I mention it, not to toot my own horn as some schmucks have written, but to point out that analysts and money managers frequently overlook opportunities. We all do that. PKZ is an unusual company located in an area unknown to most U.S. investors. The company is best known to a couple of Canadian analysts. PKZ is headquartered in Canada. Just an aside, I still own all of my PKZ stock.

My sleeper number 2 is Albertsons. Some weeks back I suggested going long ABS and shorting Whole Foods Market as a hedge. I still am hedged. Yesterday, Albertsons announced they were looking to increase shareholder value. That’s nothing new. That’s the on-going job of management and the board of directors. In this case, they hired Goldman Sachs and the Blackstone Group. In my view, the company will be sold. In the case of PKZ, it was obvious that China and India would be in a bidding war for the company. The buyers are less clear for Albertsons; however, I have some strong thoughts as to those who probably are quite interested. I have been following Albertsons for 30+ years. Since 1991, the stock has traded at least at $20 per share. In 1999, it sold at 67. From 1993 until 2003 it sold for at least $30. It’s now $23.05. The company was founded in 1939 in Boise by Joe Albertson. He died in 1993. Joe had a keen eye for prime locations. The market has totally ignored the hidden real estate value in the company’s 2,500 stores in 37 states. Investors have not given a thought to the company’s 2,000 pharmacies in 37 states. The company has grown both organically and through acquisitions. In 1999, their acquisition of American Stores was effectuated for $11.7 billion in cash and stock. In 1999, Albertsons had 1,656 supermarkets and 773 pharmacies. Last year, the company purchased 200+ Shaw’s and Star supermarkets for $2.5 billion, including $368 million in capital lease assumption. Over the years, there has been the acquisition of Jewel-Osco, Seesel’s, Smitty’s, Buttrey’s, New Bristol Farms, and Lucky’s (as part of American Stores). Kroger has a few more stores than Albertsons; however, they have more sales and about 50,000 more employees. Kroger has a market cap of $14.5 billion or $6 billion more than Albertsons. On a cash flow basis, Albertsons is much more attractive than Kroger. In my view, the price of Albertsons stock does not reflect the value of the cash flow and the real estate, and ignores the job the CEO and the management team have done. The integration of American Stores has been difficult. Many improvements have been accomplished in the areas of technology, logistics, check-out systems, cost savings, and process efficiencies. Just over the last four years over $1 billion in cost savings has been realized. The company is just now recovering from a 4 ½ month strike of 59,000 supermarket workers in California that ended Feb. 29. Results will be on the upswing. Margins will continue to improve and so will cash flow. In addition, various buyers will recognize the value in the company’s real estate. I believe a fair buy-out price for Albertsons is around $32 a share. At that level, in my view, a good deal of upside is still available for a buyer of the whole company.

Woody Allen: "I do not believe in an after life, although I am bringing a change of underwear."

Friday, September 02, 2005

Hypocrisy Not Breeched

9/2/05 Hypocrisy Not Breeched

As Bush addressed the nation on Wednesday, he never issued an apology. His administration cut funding for the Southeast Louisiana Urban Flood Control Project. Since 2001, pork spending has continued unabated. This year the U.S. Army Corps of Engineers spent 44% less on the New Orleans flood project than they did in 2001. Mission accomplished! Today the Congress will approve $10.5 billion in aid for the aftermath of Katrina. This is your government at work.

It is noteworthy that 86% of the 18,300 members of the machinists union voted to strike Boeing. The last strike lasted 69 days in 1995.

The dollar dropped to a 3-month low versus the dollar. In the last 2 days, the dollar has declined almost 2%. There is a growing consensus that the Fed rate hikes will be coming to a close after September. This week the 2-year versus 10-year yield spread has widened from 12 to 27 basis points.

It was interesting that Starbucks stated their strong same-store sales performance in August was due to the demand for their Tazo tea line.

The U.S. August ISM factory index declined to 53.6% from 56.6% in July. New orders dropped to 56.4% from 60.6%. Employment dipped to 52.6% from 53.2%. The price index jumped 14 points to 62.5%.

The pending home sales index in July slipped 1%, but the index is 3.5% higher than July 2004.

In the second quarter, home prices rose at a 12.8% annual rate. I predict the third quarter will provide a different picture.

GM’s August sales declined 16%, while Toyota’s U.S. August sales rose 9.5% to a new monthly record.

Gold climbed to a 2-week high and closed at $446.30 an ounce.

About 90.4% of daily oil production in the Gulf is shut in and 78.7% of natural gas production is shut in.

A team from the Chemistry Department at the Drug Discovery Initiative at the University of Arizona’s BIO5 Institute gave a paper entitled “Melanotropin ligands for the hMCRs: Multiple biological activities! One receptor? The Challenge!” at the 230th American Chemical Society National Meeting in Washington, DC on August 31. The research, supported by grants from the NIH, developed modified versions of naturally occurring peptide hormones that could be key to novel treatments of a variety of diseases, including eating disorders (anorexia, obesity), diabetes, sexual dysfunction and skin cancer. They “discovered that if we alter the chemical structure of the ligands in a slight but precise way, they become 100 times more selective or 100 times more potent. Patients would have to take less amounts of a melanoctropin-based drug and experience fewer side effects.” If any of this research sounds familiar, it should. Palatin is the leader in melanocortin-based drug research in the U.S. I remain highly confident that the company is on the right track to making a significant difference in the fields of eating disorders and sexual dysfunction.

Gary Lammert, Economic Fractalist: “Today’s (Aug. 31) equity valuations reversal to the upside – from a nonlinear drop at the opening—places the first fractal base at 11 days – identical to the 11 day base that occurred in 1929. In 1929 the fractal decay daily pattern to the low was 11.27/27 days conforming to an idealized x/2.5x/2.5x decay pattern…Relative to 1929, the 2005 U.S. fractal evolution is remarkably weak.” Lammert attributes this comparative weakness to the enormous debt loads that have been integrated into the fractals.

AAA said Friday the average U.S. retail price of regular unleaded gasoline rose 52% from a year ago to a record $2.815 a gallon. The automobile association said the average price of diesel fuel also rose to a record Friday at $2.771 a gallon.

U.S. August nonfarm payrolls increased 169,000 as services jobs rose by 156,000, while factory jobs fell 14,000. The average hurly earnings rose by 2 cents to $16.16 per hour, while the average workweek was unchanged at 33.7 hours. The long-term impact from Katrina makes these numbers irrelevant.

Thursday, September 01, 2005

Reality And Vulnerability

9/1/05 Reality And Vulnerability

According to the September 2005 Duke University/CFO Magazine Business Outlook Survey, for the first time in the four years that the survey has gauged corporate
optimism, there are more CFOs with growing pessimism about the U.S. economy
than there are with increasing optimism. Nearly 37 percent of CFOs are more
pessimistic about the national economy now relative to how they felt last
quarter, and only 28.6 percent are more optimistic. The level of optimism is
down sharply from last quarter when 40 percent of CFOs said they were more
optimistic, and down even more relative to last year when 72 percent of CFOs
were. "This is the greatest increase in pessimism that we have seen," said Don
Durfee, research editor of CFO magazine. "We've found that this optimism
index predicts future economic growth quite well. In a situation like this,
where the growth in pessimism outweighs the growth in optimism, we expect to
see a slowdown in economic growth. "To understand the causes of the reduced optimism in the U.S, the survey asked executives to choose the top three items, from a list of 15, that are concerns for their companies. CFOs report high fuel costs as the number one
concern for U.S. firms, surpassing high health care costs for the first time since the survey has addressed these concerns. Other top concerns include rising interest rates, increased regulation and reduced pricing power.

Novartis, which already owns 42.2% of Chiron, offered $40 per share for the remainder of the outstanding shares.

The Chicago PMI for August plummeted to 49.2% from July’s 63.5%. It was the first time the index has been below 50% since April 2003. The reaction in the bond market was for the 10-year Treasury yield to decline to 4.01%. Futures contracts point to only a 50-5- chance for a November rate hike.

About 46 million Americans are without health insurance, up 800,000 from the prior year.

The Manufacturers Alliance/MAPI predicted China’s 2005 trade surplus could hit $140 billion this year, up from last year’s $32 billion, and this increase is despite soaring costs for fuel and many other commodities.

According to Forbes, U.S. trucks use about 21% of all fuels the country consumes.

Last night, 91.5% of daily oil production in the Gulf was shut in. Several pipelines are out of service. Port Fourchon is severely damaged. Nine refineries are shut down, 4 more are operating at reduced rates. Three refineries are under water. Natural gas output has been reduced close to 88%. Crude closed at $69.55 a barrel, and gas at the pump jumped to over $3 a gallon.

Phip Verleger, former director of the Office of Domestic Energy Policy at the Treasury Dept:: "Rising prices are going to require consumers to double expenditures on gasoline, electricity and heating fuels. Other spending will be cut and recession will follow."

As the water recedes in La, Miss, and Al, reports of dead bodies will mount. It is possible the final count will exceed the 9/11 tragedy.

"What you're seeing is revealing weaknesses in the state, local and federal levels," said Eric Tolbert, who until February was FEMA's disaster response chief. "All three levels have been weakened. They've been weakened by diversion into terrorism."

There is a great deal of speculation concerning a rebuilding boom after Katrina. Again, I caution you. If the levee system is not replaced, what company would provide home and commercial insurance coverage? I believe the $14 billion estimate to replace the levee system is too low. At current costs of materials, a figure closer to $18 billion would not be surprising. Swiss Re estimates that damage from Katrina could total $20 billion. After discussions with many locals, I think this figure is low.

Bloomberg’s Caroline Baum: “Destruction doesn’t create economic growth.”

Freightliner will lay off 260 employees from its Mount Holly, NC plant by late September due to slowing demand for medium-duty trucks. Plant production is being reduced to 100 such trucks per day, down from the current 120. Roger Nielsen, COO, stated “the recent growth in this segment has slowed, hindered by rising diesel prices and economic uncertainties.”

Paul L. Kasriel: “Real M2 growth currently is sending a warning signal about the future trend growth of real economic activity. At least one FOMC member has taken notice. I would not be surprised if the tone of discussion at the September 20 FOMC meeting is somewhat more guarded about the strength of the economy going forward. That is, the comment that monetary policy remains accommodative may be on the way out.”

There is speculation that India’s Ranbaxy is interested in Alpharma’s generic business. On Aug. 22, Alpharma reiterated that it was seeking ways to maximize shareholder value.

Tokyo stocks reached a 4-year closing high.

The Semiconductor Industry Association said that worldwide sales of semiconductors rose to $18.01 billion in July, up 0.3% from June but down 0.03% from the same point a year ago. "Strong competition contributed to declining prices for semiconductors," stated SIA President George Scalise.

Comparable sales for the periods ending August 26, 2005 and
August 27, 2004 for Wal-Mart were as follows:



4 Weeks Ended 30 Weeks Ended
8-26-2005 8-27-2004 8-26-2005 8-27-2004
Wal-Mart Stores 2.6% 0.1% 3.4% 3.4%
SAM'S CLUB 6.6% 2.7% 4.0% 7.6%
Total U.S. 3.3% 0.6% 3.5% 4.1%


The company estimates comparable sales in the U.S. for the September five-week
period to be in the 2 to 4 percent range "subject to the ongoing impact" of the nation's worst natural disaster in recent history. Wal-Mart said it was forced to close about 126 stores, more than 3% of the company's total U.S. stores. As of early Thursday, more than 80 of those - or 1% of the U.S. locations - have been reopened.

JFK: "The supreme reality of our time is the vulnerability of this planet."

Andrew Blaustein, Ph.D., Oregon State University zoologist: "The amphibians are like canaries in a coal mine and they are in trouble first. ...The fact of the matter is: we have only one coal mine for planet earth. The coal mine is in trouble right now. And the amphibians are telling us
­ it's a warning!"

The personal savings rate was a negative 0.6% in July, the lowest since monthly records began in 1959.
Consumers out-spent their incomes. It should be noted that there were several negative savings rates for several quarters during the Depression.

The jobless claims for August will not include data related to Katrina.



Wednesday, August 31, 2005

Floating Coffins

8/31/05 Floating Coffins

When you see floating coffins, you can expect the worst. From my perspective, the worst is yet to come. When the water finally goes down, then a more accurate count of the dead bodies will be possible. Unfortunately, the number will increase from the impact of disease. A good part of this unfolding tragedy could have been avoided. Year in and year out the warning bells went off to replace the levee system with one that could withstand the most severe storm. The cost to do so was estimated at $14 billion. Instead, the daily party on Bourbon Street continued. Again, estimates of damage are flung into the air. New Orleans will not be rebuilt without the levee system being replaced. It will take years to rebuild parts of Louisiana, Mississippi, Alabama, and Florida. Where will those people live? Who will provide food, clothing, medical care, and jobs? On Friday, the employment report will be released. Katrina made that report meaningless. The physical, emotional, and economic devastation will impact millions of Americans for years to come. Stress is a major engine for sickness and loss of life. The water levels will eventually subside. It always stops raining. However, in my opinion, life in this country will not be the same.

Before Katrina hit, the census bureau stated that 1 in 7 Americans lack health insurance and that, in 2004, 37 million people were living in poverty, up 1.1 million from 2003. It equates to 12.7% of the population. That was before Katrina. Interestingly, N.Y.C. with all its expensive apartments had a poverty rate of 20.3%.

The S&P 500 is fighting to stay above the 1200 level. As the national debt mounts closer to $8 trillion(excluding Social Security and Medicare), as the twin deficit towers rise, as the cost of health insurance grows, as the aftermath of Katrina comes into clearer focus, hoping for a holiday rally will not strengthen the floodgates. You will hear the cry of buying on weakness, averaging down, and the market being oversold. Tell those rallying buffoons to buy with their own money. Keep your powder dry. Katrina is not the last storm to hit our shores.

If you are depending on the price of gasoline to go down because Bush is loaning some of the strategic petroleum reserve, forget it. Katrina has impacted 14 refineries. Gasoline futures rose 20% yesterday to $2.47 a gallon. The media reports on $3 a gallon gas. The question is how quickly it will go to $3.50. October crude futures are trading around $69 a barrel.

State Farm is the largest homeowner insurer in La, Miss, Al, and Fla. The largest share of commercial insurance is borne by St. Paul Travelers, Zurich, and State Farm.

Reuters reported that GM lost an average of $1,227 for each vehicle in the first six months of 2005, while Ford lost $139. Toyota made $1,488 per vehicle.

Heating oil rose to $2.08 per gallon or 86% higher than a year ago, and natural gas climbed to $11.75 per million btu.

The national weather service is warning of possible tornadoes.

Demand for manufactured products declined 1.9% in July. The transportation sector fell 8.8%, the largest drop in 19 months. There was a 20% decline in demand for commercial aircraft and parts.

The Conference Board Consumer Confidence Index rose in August to 105.6, up two points from July. After the devastation created by Katrina, I wonder what that confidence index would be.

Even with gold trading down about $6 an ounce and silver at its lowest close since Jan. 20, the CRB still rose 10 points to 333, the highest level since 1980 and 21% higher than one year ago. September copper closed at a record $1.7095 a pound.

It was reported that 95.2% of oil output from the Gulf and 88% of Gulf natural gas output was shut in.

According to a survey released yesterday by the AFL-CIO, 53% of workers stated their income is not keeping up with rising health care and gasoline prices, and 70% stated employers aren’t giving them raises to keep up with higher costs. Some 72% stated they would like to see the government guarantee health care coverage for all Americans.

New applications for mortgages at major U.S. lenders fell 4.5% last week, the Mortgage Bankers Association said Wednesday. Applications are up 12.7% year-over-year. The four-week average of new applications fell 1%. Applications for purchases dropped 3.6%, while applications for refinancings dropped 5.4%. Maybe we should run a contest to see who can guess the correct number of unsold homes on the market at 8/31/06.

Hewitt Associates today released preliminary results from its annual Asia Pacific
salary increse survey for 2006 that reveals the following increases by country:

Australia 4.2% Malaysia 5.4%
China 8.1% Philippines 8.1%
Hong Kong 3.4% Singapore 4.0%
India 14.0% Taiwan 4.2%
Japan 2.8% Thailand 6.5%
Korea 7.1%


Palatin Technologies,Inc. announced that it will present at the Thomas Weisel
Partners 2005 Healthcare Conference at 8:00 a.m. Eastern Time on Friday,
September 9, 2005 at the Four Seasons Hotel, in Boston, Massachusetts. Carl Spana,
president and CEO, will provide an update on the Company's commercial and
development programs.


The EU and China reached a textile trade agreement in June, and the operational date
was July 12. A problem developed with the unlicensed textiles ordered by importers
and retailers before the new quota deal went into effect. The question is how much
of this year's excess should be deducted from next year's quota? Unfortunately,
the answer remains up in the air.

There have been reports that India and Norway will announce an agreement to jointly
explore for oil and gas in the Gulf region, the Caspian Sea region, Africa and
Latin America.


Monday, August 29, 2005

Breeching The Levee

8/30/05 Breeching The Levee

In New Orleans, the 17th street Canal levee gave way Monday afternoon. In Gulfport, Fire Chief Pat Sullivan estimated that 75% of the buildings have major roof damage "if they have a roof left at all." Storm surge heights greater than 20 feet are believed to have developed in the back bays and inlets around Bay St. Louis, Biloxi and Gulfport in Mississippi, just to the east of Katrina's landfall. Katrina's surge effect was felt strongly as far east as Mobile Bay and Pensacola, even though the center of the storm struck more than a hundred miles away. There is only an estimate of the number of deaths caused by Katrina in Louisiana, Florida, Mississippi, and Alabama. Gyrating figures are thrown out relating to property damage. The numbers are just numbers. As for the oil and gas industry, down time will need to be assessed platform by platform and rig by rig and refinery by refinery. In some cases, it might be a week to two weeks. In other cases, much longer. Guessing is of no use to me. We do know that, according to the Minerals Management Service, yesterday 92% of daily oil production and 83% of natural gas output was curtailed. It will take some time to get a clear picture of the damage. Keep an eye on the refineries. That's the key to price movements. As an aside, some have written that the oil and gas markets had discounted the impact of Katrina. Those folks don't know much about hurricanes. A year ago, four hurricanes hit Florida within 5 1/2 weeks. September is the height of the hurricane season. Hopefully, the next storms will not resemble Katrina. Hope springs eternal. "The crude situation is less serious and more manageable than that of refineries,'' Statoil's Kartevold said. ``It all depends on how water affected refineries in the area. Under normal circumstances it takes one or two weeks to restart plants. If there's damage, it can take much longer.''

Bedlam Asset Management: "Every storm starts with a small cloud. That China is wandering into a banking crisis is a certainty; we don't know when it will start, or how, but it is inevitable."

Hurricane Katrina and thoughts of Louisiana brought back memories dating back 20 years. It was then that I had tried to purchase a cane refinery located in that state. Unfortunately, the seller had some financial problems, and I chose not to get involved in his mess. It was the right decision. However, during the due diligence process, I learned a great deal about the relationship of refining cane sugar and the production of energy. Most folks think of converting corn to ethanol, and of course, there are tax incentives for the ethanol producers like Archer Daniels Midland. The fact is that using corn to make ethanol is grossly inefficient. A much better way is using cane juice. Ethanol from cane yields eight times as much energy as is needed to produce ethanol, says the Earth Policy Institute, USA. Cane refineries can be found in countries around the globe. As the price of crude rises to record levels, we might consider the production of ethanol from cane juice. It doesn’t require a brain trust to effectuate this plan- - - just some leadership outside the state of Texas. While we’re at it, we can use a by-product of cane, bagasse, to run the refinery. It’s a little like raising a pig. All the parts can be utilized.

In the U.S. there are thousands of “experimental” cars that can burn regular gasoline as well as natural gas. These are called “flex-fuel cars.” They are extremely popular in Brazil, the world's largest cane sugar-producing country, and can burn gasoline or ethanol or any combination of the two. Approximately, 40% of the cars in Brazil run on this type of ethanol. We can take advantage of the year-round growing seasons for cane. There are low production costs and abundant labor is available.

Moses Ibn Ezra, Shirat Yisrael: "Dive into the sea of thought, and find there pearls beyond price."

As of the end of 2005, Kazakh GDP will be higher than the combined GDP of other Central Asian former Soviet republics and those of the Caucasus, said Kazakh President Nursultan Naz..

Indian information and communication technology (ICT) spending will surpass $54.8 billion by 2008 against $29.5 billion in 2004, representing a compounded annual growth rate (CAGR) of 19 percent, Gartner said.

According to Richard Bernstein of Merrill Lynch,
"There has been record insider selling within the last 10 months across a broad range of homebuilding companies despite very few sell ratings by Wall Street analysts and the general perception by investors that the stocks are undervalued."

GE, Wal-Mart, Pfizer, MMM, and Dell are some of the greatest companies in the U.S. For months, their shares have traded as if they did not have a friend in the world. Meanwhile, every Tom, Dick, and Harry jumped aboard the iPod train. It's standing room only. I think Steve Jobs has done a great job. So have the folks at GE, Wal-Mart, Pfizer, MMM, and Dell.

Sales fell 0.3 percent in the week to Aug. 27, compared with a 0.3 percent fall the previous week, the International Council of Shopping Centers and UBS said in a joint report. Compared with the same week a year ago, sales increased 3.9 percent after a 4.0 percent rise the preceding week.

Sir Winston Churchill: "Never, never, never believe any war will be smooth and easy, or that anyone who embarks on the strange voyage can measure the tides and hurricanes he will encounter. The statesman who yields to war fever must realize that once the signal is given, he is no longer the master of policy but the slave of unforeseeable and uncontrollable events."







Sunday, August 28, 2005

Louisiana

8/29/05 Louisiana

U.S. Senator Mary L. Landrieu from Louisiana: “Eighty percent of the nation's offshore oil and gas supply, which is almost 30% of all the oil and gas consumed in this country, passes through these wetlands to be distributed to the rest of the nation. There are more than 20,000 miles of pipelines in federal offshore lands and thousands more inland that all make landfall on Louisiana's barrier islands and wetland shorelines. The barrier islands are the first line of defense against the combined wind and water forces of a hurricane, and they serve as anchor points for pipelines originating offshore…Port Fourchon, which supports 75% of the deepwater production in the Gulf, is the geographic and economic center of offshore drilling efforts along the Louisiana Coast. This port, and much of the nation's energy supply, is connected to the mainland by a 17-mile stretch of two-lane highway - LA 1 - that is inundated by flooding in relatively mild storms and is vulnerable to being washed out completely.”

Four of the 10 largest ports in the U.S. are located in Louisiana. The port of Southern Louisiana is the largest port in the U.S. and is a key port for both the import of crude oil as well as the export of grains.

Louisiana is losing its coastal land at the rate of 25 square miles a year.

Secretary Scott Angelle Louisiana Department of Natural Resources: “Louisiana’s coast is the land base for LOOP, America’s only offshore oil port that handles about 15% of this country’s foreign oil and is connected to more than 30% of the total refining capacity in the U.S. Much of the support infrastructure is located in the most rapidly deteriorating coastal areas.”

Offshore oil and gas production in the Gulf of Mexico is the second largest source of revenue to the Federal government. The first is taxes. Up to 90% of offshore oil and gas revenues have come from Louisiana.

Yesterday, Bush declared a state of emergency in Louisiana. It’s most unfortunate that Bush gave the orders to invade Iraq in 2003. Louisiana could have used the assistance of the 3,000 troops of the 256th Infantry Brigade of the Louisiana National Guard presently serving in Iraq.

Fed Governor Donald Kohn: "People may well perceive the economy as more stable than it is or central banks with greater power than we have to smooth the economy or to foresee our own actions...Clearly, reminders to the public of the inherent uncertainty in economic developments and policy responses are appropriate and should have some effect." As I have stated over the past year or so, Donald Kohn is my choice to replace Alan Greenspan as Fed chairman.

The only place lower than New Orleans in the U.S. is Death Valley.

It is early Monday morning and Katrina has yet to hit shore. I do not speculate about what I do not know. As such, I do not know how many folks will die from this storm, how many will be homeless, how much property damage will occur, and what impact there will be on the overall quality of life.

We do know that most refineries within the path of the storm have been shut down and personnel evacuated. Those corporate refineries include Valero, Murphy Oil, Exxon Mobil, Chevron, Conoco Phillips, and possibly, the Norco and the Convent refineries. The key to the near-term gyrations in the price of crude, gasoline, natural gas, and heating oil will be the continued shutdown of refineries and the scheduled re-opening of refineries. A great deal of information will be released. I suggest one only rely on the information released directly from individual companies and not information reported by the media. Disasters are a breeding ground for misinformation. Figures are thrown out and taken as the gospel. The media must report on the news. Obtaining the most recent facts is an on-going effort. In the case of Katrina, this may be exceedingly difficult. When in doubt, do nothing.

There have been reports that crude has traded above $70 a barrel, gasoline futures at $2.12, and heating oil at $1.97. One can be certain that volatility will become, in the short-term, the centerpiece of activity.

High gasoline, natural gas, and heating oil prices cannot be dismissed as "nuisance taxes." The rate of consumer spending is on the downswing and so is the demand for total domestic petroleum with deliveries dropping 3% in July, the largest year-to-year decline in 3 1/2 years.

Aristotle: "Probable impossibilities are to be preferred to improbable possibilities."

Stiorms Are Inevitable

8/28/05 Storms Are Inevitable

Fed Governor Donald Kohn: “"Investors have had an opportunity to observe that policy actions in 1987, 1998 and 2001-2003 cushioned the economy, but they did not stop major declines in the prices of equity in 1987 and 2001, or of risky credits in 1998."

Peter Mandelson, EU Trade Commisssioer, stated he was ready to present proposals to EU member that would release all Chinese-made garments held up in European ports by a dispute over textile imports.

According to Freddie Mac, homeowners took $59 billion in cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s.

According to Mike Burk, the last 3 trading days of August and the 1st 2 trading days of Septemeber during the 1st year of the presidential cycle have a positive bias.

Citigroup chief economist Lewis Alexander believes the Fed will stop hiking short-term rates at 4% because “we think the economy is going to slow.”

Xinhuanet reported that the Kazakh government backs CNPC’s acquisition of PKZ. In my opinion, should ONGC/Mittal outbid CNPC, then the Kazakh government will back that bid.

"The freight for containerized cargo from November-December onwards for all major destinations like USA and Europe from India will start coming down," Vijay Chhajer chairman Chhajer & Co chairman and past president, Calcutta Freight Brokers Association said."The freight to US and Europe are projected to ease by 20-25 per cent in December-January," Chhajer said.

Hurricane Katrina has been upgraded to category 4 with winds approaching 135 miles per hour. As of yesterday, Shell, BP, at least 9 rigs, and a dozen or more platforms have been evacuated in the Gulf. This means that at least 563,000 barrels of daily crude production have been shut in due to Katrina, and approximately 2 billion cubic feet of natural gas production has already been lost. The storm is expected to hit near the major oil and gas hub at Port Fourchon, Louisiana early Monday morning and then continue to New Orleans.

It might be wise to reflect on some thoughts from Hyman P. Minsky.. He wasn’t a vaudeville comic or even a theatrical agent. He envisioned two types of finance- - - fragile and robust. Perry Mehrling wrote a book entitled “The Vision of Hyman P. Minsky. Participants at this weekend’s Jackson, Wyoming symposium might chew on the following from the book: “The degree of fragility or robustness in the economy as a whole ultimately depends on the fragility or robustness of financing arrangements at the level of the constituent economic units.”

Will Katrina prove to be another Hurricane Betsy or Hurricane Camille?